The stored-value card industry is growing rapidly. Gift cards alone generated revenues of $38 billion in 2002 (forecast to double by 2006: Bain & Co.). Likewise, prepaid cellular telephony is forecast to generate $9.9 billion of revenue in 2003, and $14.3 billion by 2005 (Frost and Sullivan). Prepaid phone cards and prepaid debit cards are experiencing similarly high growth. Nevertheless, gift cards are not currently made available conveniently to consumers. A Lord & Taylor gift card, for example, must be purchased at a Lord & Taylor outlet, instead of at the corner gas mart or drug store. In spite of this, gift card sales continue to rise at a rapid pace. For example, magnetic-stripe gift cards are rapidly gaining widespread acceptance with American consumers and retailers alike. A national study commissioned by ValueLink found that 40% of all American consumers purchased or received a gift card in the past 12 months. Consumers purchased an increasing amount of cards during the past year—an average of 4.6 cards per person in 2002, compared with 4.1 cards in 2001. Just as important, the average value of a card purchased grew to $51, from $44 the previous year.
New York-based Bain & Co., accurately predicted gift card sales would reach nearly $38 billion in 2002, up nearly three-fold, from around $13 billion in 1998. This revenue is currently derived entirely from cards sold in the stores where they will be redeemed.
An equally positive trend is evident with prepaid debit cards. Credit/debit-card payment is obligatory in an increasing number of transactions. An unfulfilled need exists in the marketplace: ‘unbanked’ or credit-challenged consumers require a suitable financial instrument to shop online, make hotel or rental car reservations, book airline tickets, etc.
Interestingly, immigrants have discovered another use for prepaid debit instruments: money transfers. With two debit cards tied to a single account, an individual in the U.S. can load balance onto one card, while a relative abroad withdraws money from an ATM using the other card. This is beneficial to consumers because it bypasses expensive wire transfer fees.
In a similar way, prepaid calling cards have become necessities in the large ethnic and immigrant communities across the country. Large IXC carriers (i.e. ATT, Verizon, Sprint, etc.) sell their fixed, excess capacity to calling card companies at low rates. These companies are therefore able to sell consumers airtime in the form of prepaid cards that are substantially less expensive than traditional postpaid long distance. It is for this reason that immigrant populations have traditionally been the largest consumers in the prepaid calling card industry. They require the cheapest possible international rates for frequent calls to their countries of origin.
A similar growth pattern is evident with wireless service. Instead of being billed at the end of the month, consumers with prepaid wireless accounts use replenishment cards to recharge their phones. Prepaid wireless was initially aimed at consumers who did not qualify for postpaid service. In the last three years however, a shift has occurred in the marketplace: many consumers are intentionally selecting prepaid service for budgetary reasons. While ‘unbanked’, credit-challenged consumers use prepaid wireless service out of necessity, business travelers, parents of teens, and other budget conscious market segments increasingly prefer it.
The stored-value card industry is currently undergoing another radical transformation. Phone card distributors and retailers that previously stocked only ‘live’, ‘scratch-off’ cards have recently begun to install magnetic-stripe POSA (Point-of-Sale-Activation) systems. Unlike ‘live’ cards, which can be used after they are stolen, POSA cards are inactive and value-less until swiped by a store clerk through a counter-top card reader. Nothing is lost if the cards are stolen prior to activation. More importantly, retailers and distributors only pay for cards when they are activated, eliminating up-front inventory costs.
The foregoing mentioned developments have been a result of a number of factors, such as technological advances, changes in business models, advances in the utilization of the Internet, advances in security, among other reasons. A small representation of various technological advances and business models are disclosed in the following U.S. patents and published application: U.S. Pat. Nos. 6,651,885; 6,070,147; 6,129,276; 6,311,165; 6,256,690; 5,999,624; 5,696,908; 5,309,506; and U.S. Pub. No. 2003/0061113.
Notwithstanding such developments, for retail stores and other establishments to fully take advantage of the rapidly growing interest and benefits of POSA cards, a POSA system that is capable of activating a POSA card must be purchased or leased, and then utilized to activate POSA cards. Clerks and cashiers also must be trained to use these devices. Such financial and time investments in currently available POSA systems generally are not welcome by retailers, distributors and card issuers. The extra countertop space required to accommodate a dedicated POSA system also is generally undesired.